“But the global economic meltdown has given them the satisfying triple whammy of exposing the risks in deregulation, giving the state a more important role and (best of all) laying low les Anglo-Saxons.

……………..

On the continental side, there is nothing especially socially cohesive about labour laws that favour insiders over outsiders, or rules that make the costs of starting a business excessive.

Even Colbert might admit that Europe’s tax burdens are too onerous today, particularly since they are likely to have to rise in the future to meet the looming cost of the continent’s rapidly ageing populations.

For the liberals, even if the cycle swings back in their direction, the financial crisis and the recession have shown up defects in the way they too implemented their model.

Getting regulation right matters as much as freeing up markets; an efficient public sector may count as much as an efficient private one; public investment in transport, schools and health care, done well, can pay dividends”.

THE huge signs are up in town squares, city parks and myriad spots where men in overalls dig holes, lay pavements or spruce up public facilities. They proclaim that the work is being paid for by Plan E, the stimulus package pushed through by Spain’s Socialist prime minister, José Luis Rodríguez Zapatero. This included €8 billion ($11 billion) for immediate spending by town halls.

Plan E was meant to keep Spaniards working. Yet the latest unemployment figures show that it is not enough. In April 40,000 more people joined the dole queues. That was a slower rise than in previous months, but it still leaves Spain with a 17.4% unemployment rate, the highest in the European Union and twice the EU average. The European Commission predicts that unemployment will hit 20.5% next year. It also says Spain will struggle longer than other countries to recover, getting into positive growth only in 2011, a full year after the EU as a whole. “The sick man of Europe” was how the pro-government El País newspaper greeted the news.

Perhaps the most worrying thing is that Plan E has, in part, worked. The government says it has created some 280,000 jobs, even if few are permanent. The effect is temporary, said Pablo Vázquez of the Foundation for Applied Economic Studies. In August and September unemployment may climb again. Spain is lucky that strong social networks (helped by the black economy) help to prevent civil unrest.

The economy is in a double bind. It has been engulfed, like the rest of the world, by recession and shrinking global trade. To this is added Spain’s own particular crisis, as a model based on cheap labour and a dizzy property market hits the skids. Economists say that Spain must now make the sacrifices and take the tough decisions that it avoided during the long boom years.

Labour-market reform is perhaps the toughest of all. In some ways Spain’s labour laws are quite flexible. With almost a third of the workforce on temporary contracts, marginal workers are easy to shed by the simple expedient of not renewing contracts. That explains why Spain accounts for over half the additional unemployment within the euro area in the past year. The rest of the workforce is on Teflon-coated permanent contracts that make people difficult and expensive to sack. Companies inevitably choose staff to shed on the basis of how easy they are to fire.

Almost everyone favours reform. Such an initiative is urgently needed, with the government leading it, said a group of 95 academic economists in a letter. Mr Zapatero, however, does not share their sense of urgency. And labour-market reforms are not all that he is shying away from. The Bank of Spain recently issued a warning about a dwindling pension pot, suggesting it was time to push the retirement age above 65. Liberalisation of services provided by everyone from notaries and lawyers to veterinarians would help the recovery, said José Carlos Diez of Intermoney, a consultancy. “Whenever we have had a liberalisation plan, the economy has shown its potential for growth,” he added.

So why does Mr Zapatero not reform? Besides all the usual worries about strikes, trade unions and public support, his main problem lies in parliament. Last month his minority government lost its first parliamentary vote. Although the Socialists are only seven seats short of an absolute majority, they are struggling to find allies. Basque nationalist deputies are angry that a Socialist, Patxi Lopez, has just become their region’s premier. Catalan nationalists are similarly tired of the Socialist-led administration in their region. A fractious group of left-wing parties is not always reliable and unlikely to back tough reforms.

That leaves the main opposition, the conservative People’s Party, which now leads in the opinion polls. Some Spaniards would like to see the two big parties push a reform agenda through together. Things will have to get much worse before they are ready to do that.

POLITICS has turned funereal. New Labour was buried by ululating commentators after last month’s flawed budget. Now the -ism that spawned Tony Blair’s hybrid creed is apparently following it into oblivion. The 30th anniversary of the Iron Lady’s first general-election win in May 1979 has been marked by reports, often exultant, of the death of Thatcherism.

There are two strands to this diagnosis. One is that Margaret Thatcher’s deregulatory reforms, in particular the “Big Bang” of 1986, caused the financial crash; in this critique Mrs Thatcher (as she was in office) personally dispensed bankers’ bonuses from her handbag. The wider point is that the economic model she advocated, and which her apostate Labour successors embraced, has been discredited. Neo-liberal, Thatcherite economics, runs this argument, was fatally undermined by its own internal weaknesses, then interred after the crunch amid a mêlée of Keynesian splurges and nationalisations. None of us is a Thatcherite now.

The first charge is true only in the way that, say, the Versailles treaty “caused” the second world war. There have been too many intervening years, factors and governments for the case to stand up—though it reflects Mrs Thatcher’s mythic status that, for some, she must be to blame. The wider argument is plain wrong. The themes of British politics in the next few years will be recognisably Thatcherite. So will many of the policies.

Conviction and confusion

One nostalgic motif may be confrontation with trade unions. Of course, they are not the destructive power in the land that they were in 1979: Mrs Thatcher saw to that. Their membership has shrunk; their leaders are saner. All the same, the squeeze on pay and pensions in the public sector that may be needed to help cut Britain’s deficit will doubtless provoke a serious punch-up.

Another is privatisation. Admittedly, the state has temporarily taken charge of the new commanding heights of the economy, the banks. But elsewhere the process of privatisation begun by Mrs Thatcher and furthered by her heirs continues: witness the row between Gordon Brown and Labour MPs over plans for Royal Mail. More importantly, in areas that Mrs Thatcher only nibbled at—health, education and welfare services—politicians will push on with bringing in private provision and applying the rigours of the market to the functions of the state.

Then there is the question of tax. The new top rate of income tax, of 50% for earnings over £150,000 ($225,000), is cited as evidence of Thatcherism’s combustion. Yet the angry response has shown how widespread and ingrained is the doctrine that Mrs Thatcher preached: that low tax is good for both enterprise and government revenues. Moreover, while the latest increase may be myopic, it is scarcely the sort of confiscatory levy imposed before she took over: the realm of the possible in taxation has shrunk. Taxes may rise in the immediate future (as they did after the notorious budget of 1981); but a 1980s-style backlash against over-taxation across the whole spectrum of wealth may well follow. There could be a renewed push for tax reform, shifting the burden, as Mrs Thatcher did, from income tax to other kinds.

Britain is not the place it was in 1979: it is more complex, more tolerant and hedonistic, haunted less by imperial decline than by pseudo-imperial overstretch. Its problems are different too. Thirty years ago, taming inflation and making the country governable were Mrs Thatcher’s first priorities. Now one pressing need is to fulfil an aspiration she never realised: a dramatic reduction in the proportion of national wealth consumed by the state. For all the excitable short-term neo-Keynesianism, the basic long-term solution is Thatcherite: stringent economic discipline.

Imposing that discipline will bring with it two other Thatcher trademarks: controversy and intermittent unpopularity. The atmosphere of politics, like some of its content, is set to be Thatcherite. And Mrs Thatcher’s experience offers her successors a template for the uses and management of opprobrium.

For Mr Brown, the comparison is shaming. Shortly after he moved into Number 10, he invited Mrs Thatcher round for tea, describing them both as “conviction politicians”. Yet whereas her premiership was controversial in pursuit of a transformative goal, his has been a study in purposeless unpopularity.

Meanwhile David Cameron, the current Conservative leader, is in one sense the first post-Thatcherite holder of that office; only now have the clefts in the party left by her ousting healed. Mr Cameron is a different sort of Tory: less of an economic determinist than Mrs Thatcher, more socially liberal, more in the party’s “one nation” tradition. But he has assimilated at least one major lesson of her often misremembered career. She was a revolutionary but also an incrementalist, whose biggest upheavals were mostly not announced in her manifestos.

Mr Cameron is being similarly cautious. He now lauds Mrs Thatcher where once he seemed to distance himself from her, using her name as a byword for political bravery—but without saying precisely what form his own bravery will take. His Tory colleagues talk about how loathed they expect to be after six months in government—but not exactly why. The outstanding question is this: for all the shortage of upfront details, Mrs Thatcher knew what she wanted to achieve. Do the Cameroons?

At a recent press conference Mr Cameron was asked about the Thatcher anniversary. Serendipitously, as he answered, a military band struck up outside the window; Mr Cameron clenched his fist and talked with mock bombast about giving “pride back to Britain”. He is of a generation for whom invisible, ironising inverted commas hang above any grand or portentous statement. They didn’t for Mrs Thatcher. Her lesson is that Mr Cameron needs to know his mission, stick to it and hold his nerve.

IT HAD been purring along nicely, handling the twists and turns of the world economy, powering past rivals, inspiring envy. But in recession Germany’s export-led model is sputtering more than most. The European Commission now expects German output to shrink by 5.4% this year, compared with a 4% drop in the European Union overall; the German government predicts a 6% plunge. Most of the contraction will be in exports.

Countries with similar models are thinking of trading them in. It is “no longer realistic to hope that Japan’s growth can come back just by exporting the same products,” the Japanese prime minister, Taro Aso, told Handelsblatt newspaper. Philipp Hildebrand, president of Switzerland’s central bank, expressed similar doubts. Germany’s economic press is peppered with articles asserting that the country “needs a new business model”.

Most German leaders disagree. The two main parties in the grand coalition, Chancellor Angela Merkel’s Christian Democratic Union (CDU) and the Social Democratic Party (SPD), are sniping before the federal election in September, but they are united in believing that exports must remain the foundation of German prosperity. Germany, unlike other rich countries, has avoided deindustrialisation, they point out. With a rapidly ageing population, it is also right to accumulate savings by running a current-account surplus. Its scant natural resources and tradition of openness point the economy towards trade. Besides, Germany just isn’t that into services, which have displaced industry in other countries.

This model could now change in one of three ways. The government could pursue an industrial policy that favoured production for the home market. To most Germans that would seem bizarre, though there is scope for creating service jobs in education or care for the elderly. Or the government could promote consumption by keeping fiscal policy relatively loose. But given German allergy to debt that is unlikely. Or change could come through a slowdown in world trade and a correction of international imbalances. This seems by far the most likely course. Germany will not deliberately surrender its position as the world’s top exporter of goods, says Bert Rürup, a former head of the government’s committee of economic “wise men” now at AWD Holding, a financial-advice firm. But its current-account surplus may fall as profligates like the United States and Britain consume less and export more.

Germany is export champion largely because it has done many things right. After losing competitiveness for years, industry clawed it back by holding down wage rises and shifting some production abroad. Germany now has “the lowest increase in unit labour costs of all its main trading partners,” says Mr Rürup. The previous SPD-Green coalition sought to reduce joblessness by trimming unemployment benefits and deregulating the labour market. Its successor has slashed the budget deficit, partly by increasing value-added tax by three points. German consumers stayed thrifty as consumers from San Sebastián to San Francisco binged on debt.

The result of this self-restraint was that exports soared in real terms, whereas consumer spending barely budged (see chart). Between 2004 and 2007 net exports accounted for 60% of growth. Germany’s current-account surplus reached a hefty 6% of GDP last year, irritating its trading partners within the euro area, which have been unwilling to hold down wages but can no longer resort to devaluation. Rather like China and Japan, virtuous Germany has made its living out of the overindulgence of others.

That was not a worry when times were good, but it is now. Exports will fall by nearly 19% this year, according to government forecasters. Germany’s debt-free households, by contrast, will cut spending by just 0.1%. The export-led recession has hurt its most prosperous regions and better-paid workers, which may be one reason why the public outcry has been muted. But recovery will not be quick. Some international trade “will disappear forever,” says Marek Belka, director of the IMF’s European department. Vehicles, machinery and chemicals account for nearly two-thirds of exports, a narrow base for the prosperity of the world’s fourth-largest economy. Vehicle manufacturing is highly vulnerable. Too many factories and workers are making too many cars globally; Germany will surely be forced to close down some production.

When recovery comes, consumption is likely to play a bigger part than exports. By 2013, net exports will account for 3.25% of GDP, down from 6.3% in 2008, says a forecast by eight economic institutes. Consumer spending, meanwhile, will rise from 56.3% of GDP to 57.75%. This shift will occur amid sluggish growth and lower employment: the trend rate of growth between 2008 and 2013 will be 0.9%, compared with average growth of 1.5% in 1995-2008, say the institutes.

Do not expect the government to encourage the change, however. Even as they battle to save carmakers like Opel, the German arm of General Motors, politicians dream of the world champions that may replace them. The SPD’s campaign programme rhapsodises about “climate and environmental technology” in which Germany supposedly has a competitive edge. IW Consult, part of the business-friendly Cologne Institute of the German Economy, thinks the growth industries will be pharmaceuticals, measurement technology and business services.

A government worried that growth is skewed towards exports could redress the balance by cutting taxes or raising spending. Dirk Schumacher, an economist at Goldman Sachs, says that the rise in VAT was a “big policy mistake” that squeezed consumption and also helped to undermine support for further economic reforms. He thinks the government should give low- and middle-income earners extra tax relief, even after the economy starts to recover. Ms Merkel may yield to pressure from the CDU’s liberal wing to make this the centrepiece of her election platform.

In the end, fiscal prudence will win out. The contraction of GDP plus the government’s two fiscal-stimulus packages will push the budget from balance in 2008 to a deficit of nearly 6% of GDP in 2010. The next government is likely to want to pare that back. Both governing parties back an amendment to the constitution to bar the federal government from running big deficits in most circumstances (and state governments from incurring any at all) after 2016. Tax will not be cut as a share of GDP, predicts Mr Rürup. The title of export champion may have lost its glitter, but Germany will not give it up lightly.

The French way of doing things looks pretty good—at least in these troubled economic times

OVER 60 metres (nearly 200 feet) above the ground in the Picardy town of Beauvais, fiscal stimulusà la françaiseis under way. With tiny paintbrushes and sandblasters, artisans perched on scaffolding are painstakingly scraping away at the damaged façade of the towering 14th-century gothic cathedral. The €2m ($2.7m) restoration is one of 1,000 projects put in place by the French government as part of its €26 billion stimulus plan. Along with more conventional schemes, such as upgrades to motorways, ports and the TGV high-speed train network, France’s boost includes the scrubbing up of a host of its historic cathedrals and churches.

Even in a crisis, the French do things differently. Despite calls from the Americans to do more to lift consumer demand, their stimulus plan relies heavily on front-loading investment in infrastructure, cathedrals included, in line with theirdirigistetradition. A strong beneficent state, with heavy taxation, regulation and protection, is common to many continental European countries. But nowhere is it more pronounced or entrenched than in France, where it reaches back to the construction of roads, canals and industrial mammoths under Jean-Baptiste Colbert, Louis XIV’s minister of finance and industry.

In recent years, before the financial crash, what is loosely known as the French model came in for fierce criticism, chiefly for failing to generate enough growth or jobs. Its detractors have not only beenles Anglo-Saxonsbut have also included Nicolas Sarkozy himself. He may be better known now for proclaiming the end of laissez-faire capitalism. But he was elected France’s president partly by arguing that the French model was moribund, and picking out the British and American models for praise.

Before him, a string of government-commissioned reports, written by such authors as Michel Camdessus, a former IMF managing director, and Michel Pébereau, chairman of BNP Paribas, laid bare the failings and costs of the system. France’s public spending accounted for 52% of GDP in 2007, next to 45% in Britain and 37% in America. Yet in 1997-2007 its annual rate of GDP growth was below the OECD average.

To be sure, the French economy has been battered by the global recession like any other. Firms are cutting output and shedding jobs. Unemployment reached 8.6% in February. There have been regular mass rallies across France in protest at job cuts. More sinisterly, there has been a wave of “boss-napping”, a form of kidnapping in which managers are kept by workers overnight in their own offices.

Yet France’s economy has been less hard hit than many. Its GDP is expected to shrink by 3% this year, according to the IMF, against 4.1% in Britain, 4.4% in Italy and 5.6% in Germany (see charts). It is less dependent on exports than Germany, and consumer spending in the first quarter of 2009 was up on the same period last year. The government, usually reprimanded for profligacy, is set to have a deficit in 2009 (6.2% of GDP) well below those in America (13.6%) and Britain (9.8%).

The French are great savers and most have not taken out unaffordable mortgages or spent heavily on credit. Household debt as a share of GDP is less than half that in Britain or America. The prospect of nationalising banks may give Americans nightmares about turning French. In fact the French government has not yet had to rescue any big French bank from collapse, let alone nationalise one. Though there is outrage at bonus payments in firms laying off workers, bosses’ pay in France is not that extravagant, and the income gap between the top 10% and the bottom 10% is far smaller than in Britain or America.

Indeed, with a mix of amusement and self-satisfaction, the French have watchedles Anglo-Saxonsstart to sound, well, increasingly French. Barack Obama says he wants Americans to save more and consume less, to make real things rather than short-term paper profits, to redistribute more wealth and provide health care for all. When he dropped in on Strasbourg, in eastern France, a town now linked by the TGV to Paris in little over two hours, he asked enviously: “Why can’t we have high-speed rail?”Timeran an article entitled “How we became the United States of France”.Newsweekpublished one claiming that “The last model standing is France”. When Christine Lagarde, France’s finance minister, appeared recently on Jon Stewart’s “The Daily Show”, an American comedy programme, she joked that “maybe you are moving in our direction.”

In Britain, Gordon Brown has declared—like Mr Sarkozy—that “laissez-faire has had its day”. Business chiefs clamour for Britain to get itself a proper industrial policy and stop relying on the mirage of finance. Howard Davies, head of the London School of Economics, wrote in praise of “French lessons on the state’s new role”. Even Peter Mandelson, a former European trade commissioner whom the French regard as a high priest of economic liberalism, recently turned up in Paris to learn more about what he calls industrial activism. “We have something to learn from continental practice,” he said, identifying French long-term strategic planning in such sectors as energy and transport.

To French ears, all this is rather pleasing. Mr Sarkozy hailed the G20 London summit as the end of the Anglo-Saxon model of capitalism.Le Monde, a leading daily, wrote: “In the crisis, the French model, formerly knocked, finds favour once more.”

Croissants and car tyres

Behind the loose terms and caricature, however, what exactly does the French model consist of? Does it work? As governments try to work out the best balance between the market and the state, have the French got that balance right after all?

The low-lying region of Picardy in northern France has been as battered by the global slump as any other. Workers at Continental, a tyre manufacturer, recently trashed an administrative building when the courts upheld the closure of a factory at Clairoix, with the loss of 1,120 jobs—a crushing blow to employees who had agreed to work a longer week in return for a promise to keep the site going. In nearby Beauvais, Bosch closed its factory last year, putting 240 people out of work. Now there are worries about the future of a sponge factory in the town.

Yet at lunchtime on a warm spring day, tables at the pavement cafés in the town centre, near the scaffolding-clad cathedral, are all taken. Municipal flowerbeds, where cornflower-blue lupins nestle next to ornamental cabbages, are well stocked and tended. The car park at the local hypermarket is packed. Traffic at the nearby low-cost airport, a big employer, is still busy. And local electronics and perfume factories are holding up well. “This is not a rich town,” says Caroline Cayeux, the centre-right mayor. “But having the French social system enables people to keep their heads above water.”

Beauvais, the administrative capital, captures the cushioning effect of the French model in recession, and its strong egalitarian ethos. On the one hand, there is widespread fear of job losses. On the other, there is a sense that the economy is propped up even in bad times by the public sector and the welfare system. Fully 43% of the town’s residents live in rent-subsidised social housing. The town hall itself is a big employer. Some 130 gardeners, for example, toil away in its flowerbeds year-round, digging, weeding and planting. It also distributes all manner of direct help to families, such as vouchers for children’s holidays or after-school activities. It has devised a special scheme for the 4,500 “working poor”, who fall outside other national welfare safety-nets.

Across France, 5.2m workers, or 21% of those with jobs, are employed by the public sector. If you count others whose incomes or jobs are not exposed to the economic cycle, 49% of those either in work or retired are only moderately vulnerable to the recession, according to Xerfi, an economics consultancy. Add to that layers of social protection, including unemployment benefits that can reach up to 75% of previous salary, and a raft of direct payments for families, such as €889.72 for newborn babies, and the French are relatively sheltered from market downturns.

Moreover, France’s health system, a mix of private and public provision, manages both to guarantee universal coverage and produce a relatively healthy population for half the cost per person of America’s, and with shorter waiting lists than Britain’s somewhat cheaper version. The French have higher life expectancy than both the British and Americans. Through means-testing, the state covers those without the top-up private insurance needed to complement the public scheme.

All these “automatic stabilisers”, argues Ms Lagarde, help to support demand and should be counted as part of the fiscal stimulus package. Indeed, the finance ministry has received many recent visits from other governments’ officials interested in the French system. “The difference is that the French model provides shock absorbers that were already in place,” she comments. “We haven’t had to reinvent our unemployment, health or welfare systems.”

A central feature of the French model is the state’s role as provider, cushioning citizens, redistributing wealth and propping up demand in hard times. But it has two other functions: planner and regulator.

The ghost of Colbert

The French finance ministry is housed in a vast modern structure that juts out on pillars into the Seine in eastern Paris. The finance minister also has use of the Hôtel de Seignelay, an elegant 18th-century riverside mansion in the capital’s fashionable heart. Outside the minister’s parquet-floored office stands a fine bust of Colbert, whose grandson lived in the house. Colbertist state planning helped to reconstruct France after the second world war, delivering thetrente glorieuses, or 30 years of post-war economic growth. Until recently an official “planning commission”, in charge of strategic four-year plans, still operated. The official body has gone, but the spirit, like the bust, lives on.

Long-term planning of public infrastructure is the best example of where it works well. London’s first fast-link cross-city underground line, Crossrail, is not due to open until 2017, but Paris boasts a network of five such RER lines, first launched in the late 1960s. Mr Sarkozy has just unveiled the latest step: a ten-year project to build an automated metro loop around the city outskirts, linking the main airports. France’s TGV network, whose first tracks were laid in 1974 under Georges Pompidou, continues to spread. The construction costs are heavy, with debt now hived off into a separate rail-network entity. Yet with average speeds of 300km per hour (190mph), the trains provide a viable and ecological alternative to air and road travel. Many businessmen use the TGV for daily trips between big French cities.

Or take the nuclear industry. The French government decided to push nuclear power in a big way back in the 1970s, in response to the oil shock and the country’s lack of fossil fuels. Nuclear energy now generates 78% of all French electricity, and the country is a net electricity exporter. In EDF and Areva, it has two of the world’s leading nuclear companies. France is now pioneering the construction of the latest-generation, missile-proof, earthquake-proof power plant, the EPR, with other countries set to adopt the same design.

Such French strategic planning is not only about long-term vision and infrastructure; it is also about putting in place the industrial supply chain needed to get there. The French state has either created companies (EDF, Areva) or bailed-out troubled private ones (Alstom, the manufacturer of the TGV train) in order to keep the supply side going. Such planning extends to education too. France has a world-class layer of engineering, business and public-administration schools, known asgrandes écoles, which churn out a technically skilled elite to run such firms. It is no coincidence that the bosses of EDF (Pierre Gadonneix), Alstom (Patrick Kron), and Areva (Anne Lauvergeon, seeFace Value) are all graduates ofgrandes écolesin science or engineering.

The impulse to control, which underpins the French model, extends to the third function of the state too, that of regulator. The French are champion rule-makers. There are rules about how many pharmacies any one pharmacist can own (one), and how many taxis there are on the Paris streets (15,300). There are rules about when lorries can use motorways (not on Sundays), or when shops can hold sales (twice a year, on dates set by officials). New rules allowing shops to pick freely another two weeks have been greeted as a revolution. “To have cut-price discounts in April without waiting for the June sales is unheard-of!” exclaimedLe Parisiennewspaper. Some of these rules seem absurd. But, in the financial sector, France’s regulatory urge has served it well in the current crisis.

France’s big banks may have lost plenty of money, but they have certainly performed better than their British or American peers, and most are still in profit.

One reason is tighter regulation. Take the mortgage market. French banks have generally been far more wary about lending to homebuyers. In 2007 French mortgage debt represented only 35% of GDP, according to the European Mortgage Federation, less than in Germany (48%) and way off that in the housing-bubble economies of Britain (86%), Ireland (75%) and Spain (62%). French house prices did rise strongly. But the Bank of France argues that this was as much because of demographic growth, higher real disposable income and limited housing supply as speculative buying.

How far all this is due to regulation is hard to measure precisely. One leading French official reckons the answer is half thanks to a tradition of cautious borrowing, and half thanks to stricter rules. France applies tighter rules on bank capitalisation than international standards dictate. The regulator also recommends that banks should not make loans on which interest payments represent more than a third of the borrower’s income. Banks are under a legal obligation not to push borrowers into more debt than they can manage, and cases are regularly brought to court. So caution is built into the system.

Now for the flipside

If the French model has broadly sheltered its people from credit-fuelled excess, kept demand buoyant and inequalities manageable, and delivered well scrubbed buildings and blooming flowerbeds to boot, does this mean that the model works? Or what is the catch? The answer lies in a generally disappointing macroeconomic performance, with low growth and high unemployment, and is explained by the flipside of each of the three roles the French model allocates to the state.

First, as a provider, the government taxes employers and employees with such heavy social-security contributions to pay for all the health and welfare that it ends up deterring firms from creating jobs in the first place. One reason why French workers are more productive per hour than Americans is that firms employ so few of them. Many make widespread use of rotating interns and temps. One fast-food boss says that he staffs the same restaurants in France with two-thirds of the numbers hired in Britain. France’s jobless rate (8.6%) may now be the same as America’s (8.5%). But, unlike America’s, it never falls much below 8% even in good times.

The upshot is a split employment market. On one side, decent permanent jobs, protected by industry-wide conventions negotiated by the unions. On the other, unprotected short-term work—or none at all. The young are particularly shut out: joblessness for the under-25s is 21%. On some housing projects in the heavily Muslimbanlieues, the rate is double that.

The state as planner has its flaws too. French industrial policy has evolved, and is no longer just about big planes, trains and cars. There is, for instance, a generous new research tax credit for companies, designed to boost innovation in industry particularly in the carbon-light and high-tech sectors. A new “auto-entrepreneur” system to encourage self-employment, and run on the basis of “no profit earned, no tax due”, has lured a massive 145,000 people since it was launched in January, well ahead of official expectations. “Anybody who says that the French just want to be civil servants and not entrepreneurs hasn’t got it,” declares Ms Lagarde.

But, as a senior French official points out, the Colbertist engineering culture is on the whole much better at devising and managing big planned projects than it is at dealing with bottom-up ideas and uncertain markets. France lacks start-ups, and its small firms have difficulty growing. Hardly any of the biggest companies listed on the Paris bourse were founded in the past 50 years. Moreover, the old-style policy of picking national champions has had, at best, a mixed record. Transport and utility firms may be one thing. In other sectors, including computers (remember Groupe Bull) or banking (think of Crédit Lyonnais under state ownership), it has been a disaster. Even the French have been unwinding public stakes in private enterprise over the past 15 years. There has been no widespread nationalisation for more than a quarter of a century.

Nor is the egalitarian impulse necessarily a guarantor of quality, as French universities demonstrate. In reality, France has two-tier higher education: its world-classgrandes écolescater to a tiny elite, and its broadly second-rate universities fail the masses. Tuition at universities is free. There is no undergraduate selection at entry. Recent reforms have begun to inject an element of competition, and could produce centres of excellence in time. But, for the rest, a virulent distrust of competition and selection has led to overcrowded amphitheatres, an oversupply of philosophy and sociology students and high drop-out rates. In the ShanghaiJiaoTongUniversity’s world ranking, not one French university makes it into the top 40.

As for the state as regulator, it may have protected the French economy from extreme volatility, but that goes for the upside too. A more stable economy in a recession also means a less dynamic, less innovative economy in good times. For all its positive elements, the French model has not yet not incorporated enough flexibility, leaving it with the task of ensuring solidarity, but not the dynamic growth needed to sustain it in the long run.